Assets worth nearly 6 percent of the national GDP have been declared by Italian nationals during the tax amnesty, and 98 percent of the amount has already been transferred back to Italy, mainly from offshore tax havens. The successful result of the controversial tax amnesty was announced in a statement of Economy Ministry on December 29th. This was the fourth, and, so far, most successful tax amnesty program initiated by the Government on September 15th, 2009.

The tax amnesty provides an opportunity for Italian nationals to disclose their undeclared assets in exchange for a reduced to 5 percent penalty and protection from criminal prosecution. The Government is expected to receive nearly €5 billion in penalty payments. The amnesty is scheduled to expire on April 30th, 2010, though the penalty rate charged will rise to 6 percent on declarations made between January 1st and February 28th, and 7 percent for the remanding months of the program.

From its early stages, the tax amnesty has been widely debated in political ad social circles, and, despite the fact of its great monetary success, there is still no unified view on the program in Italy’s society. Giulio Tremonti, Finance Minister of Italy, commenting on the currents results, said “This has been an enormous success and is a sign of our economic strength and of faith in Italy and also of our intelligence”. However, the fiscal gain benefits of the program were dismissed on moral grounds by Antonio Borghesi, one of the leaders of Italy’s left-wing Party of Values, who stated, “Rather than giving new oxygen to Italy’s economy it’s an injection of money from the fruits of tax evasion and illegal activity”.

Photo by Giuseppe Nicoloro

Following Italy’s raid on Swiss banks located in Italy, the Swiss government announced on November 1st that it has suspended its negotiations regarding their DTA with Italy. In retaliation, Giulio Tremonti, Italy’s Finance Minister, threatened to “dry out” Lugano, Switzerland’s most prominent financial center after Zurich and Geneva.

Hans-Rudolf Merz, Swiss President and Finance Minister, said “The accord was ready for ratification from our side. But now the negotiations are being suspended until further notice”. Though no direct confirmation has been given, negotiations are not expected to be reinstated until the commencement of Italy’s current tax amnesty.

Further, Hans-Rudolf Merz, described Italy’s actions regarding the bank raids as “criminalizing” the Swiss legal system. He went on to say “We do not accept being spied on by foreigners. We have show Rome that this is not acceptable,” and that negotiation of the Double Taxation Agreement is impossible under such circumstances.

In an effort to quell any further escalation in the situation, the Swiss government instated a working group on November 4th. Describing the purpose of the group, the Swiss finance ministry stated “The working group has the mandate to form a common strategy to calm tax and political relations with Italy and evaluate measures”.

According to Italian authorities, the operation was aimed at ensuring that all relevant taxation data was being provided by Swiss banks to the Italian tax authorities. In total, 76 branches were visited across northern Italy by the Italian Financial Police, Guardia di Finanza, and tax inspectors from the Agenzia delle Entrate, Italy’s Inland Revenue Services equivalent.

While no banks opted to comment on the raids, the Swiss government summoned an Italian ambassador on the same day to justify the action. Swiss government officials told Giuseppe Deodato, the Italian ambassador, “Switzerland has cooperated to a great extent with the international community, with European Union countries as well as with Italy in particular in tax matters”. Deodato explained later in the day on Swiss radio that the move was not aimed at being an unfriendly move towards Switzerland.

According to Italian government estimates, Italian nationals could have as much as €600 billion held in offshore funds, much of this in Swiss banks. It is hoped by officials that Italy’s current tax amnesty will attract approximately €100 billion back into Italy. Franco Frattini, Italian Foreign Minister, said “I don’t think the path of measure and counter-measure is the correct one,” and “Counter-measures certainly do not help”, warning Switzerland against any possible retaliation towards Italy about the amnesty or bank raids.

Italy, which according to an Associazione Contribuenti Italiani and Klrs Network of Business Ethics survey has EU’s highest levels of tax evasion, has approved its third tax amnesty program in eight years. The 2nd of October saw the Italian parliament pass the tax amnesty proposal with 270 affirmative and 250 negative votes. It was signed into law by Giorgio Napolitano, President of the Italian Republic, on the 3rd of October.

The tax amnesty program proposed to allow the repatriation or relocation of offshore held funds with protection from prosecution, in exchange for a 5% fine on the value of the funds. Governmental estimates have placed the possible value of repatriated wealth at €300 billion, although, national private bankers have settled on a gloomier figure of €50 to €100 million.

The tax amnesty program could prove to be a risky move for Italy in the medium-term, according to statements released by Fitch Ratings on October 6th. Brian Coulton, Fitch Ratings Head of European and Middle East sovereign debt and global economics, said “The repeated tax amnesties risk damaging the tax culture and are detrimental to fiscal performance. It risks undermining the improvement in public finances in 2006 and 2007 which were achieved by an improved tax to GDP ratio.”

Opposition to the tax amnesty program claim that it will serve as a reward for organized crime and illicit tax behavior, as it grants anonymity and some protection further prosecution crimes related to the account.

Beginning on the 15th of September, Italians will have opportunity to declare their offshore accounts to the government. The tax amnesty, which will last until the 15th of April 2010, will allow Italian nationals to protect themselves from future penalties and criminal prosecution for their undeclared assets, in turn facing only a 5% penalty on the account’s total value.

The tax amnesty applies to private individuals, partnerships and non-commercial associations. Limited liability companies and those already under investigation for tax fraud are not eligible. Those applying have two options available for their funds – repatriation and regularization. Repatriation will see the assets in question transferred to Italy and subsequently follow typical Italian laws and procedures. Regularization extends to tangible objects like art, yachts, property, along with financial assets. This option is only available to those whose offshore accounts are held within the European Economic Area, although it is envisaged that this option will eventually extend to jurisdictions which hold Tax Information Exchange Agreements with Italy.

It is hoped by the Italian government that this effort will recover approximately €4.5 billion. While the officials have made statements proclaiming high hopes for the campaign, there have been voiced concerns from its opposition who claim that the 5% levy is too lenient in comparison to similar efforts made by other European nations.